ITT Shares Surge As Probe Seen Ending

[HenryTo]

The entire education sector rose substantially today. I also have my eyes on APOL and CECO as stocks that could be bought at some point in the future.
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Monday June 27, 1:02 pm ET
Educational Services Sector Rises After ITT's Positive Legal Outcome; Lehman Upgrades ITT

NEW YORK (AP) -- ITT Educational Services Inc. shares rose nearly 12 percent Monday and lifted the educational services sector, as investors celebrated the company's problems with the Justice Department coming to an end.

The Carmel, Ind.-based technical school operator had been the target of a criminal probe concerning the possible falsification of records that could have been used to bilk the government out of financial aid. The U.S. Attorney in Houston, who is leading the investigation, said in a letter Friday that it found no evidence of wrongdoing by the company or its top management. The probe is, however, expected to continue at individual schools within ITT's network of more than 75 campuses nationwide.

Analysts viewed Friday's news as a positive for the stock, and one which could trigger the company to soon resume share repurchases.

"We believe this announcement should lift a considerable overhang from the shares and result in strong near-term price appreciation," said Lehman Brothers analyst Gary E. Bisbee in a report to clients. "We believe that this resolution is likely to end ITT Educational Services' self-imposed blackout on share repurchases."

ITT shares lost nearly one-third of their value after the company announced in February that its headquarters and campuses were raided for records involving student attendance, grades and graduate job placement. These records help determine the company's qualification for federal education aid, which accounted for about 68 percent of last year's revenue of $523 million.

The stock began to stage a comeback this month, and has now moved to within striking distance of February's 52-week high of $51.26. Shares rose $5.14, or 11.2 percent, to $51.04 in afternoon trading on the New York Stock Exchange.

Bisbee believes the stock could rise to about $62 within the next 12 months. He upgraded ITT to "Overweight" from "Equal Weight" because of the latest chapter in the investigation.

He also said ITT could use a substantial portion of its $346 million of cash to repurchase shares during the second half of 2005. The company initiated a voluntary blackout of share repurchases after learning of the Justice Department investigation. ITT currently has about 46.2 million common shares outstanding.

Besides the Justice Department investigation, the company is also being investigated by the Securities and Exchange Commission and is the target of a shareholder lawsuit. However, a spokeswoman for ITT had previously said the SEC apparently was observing the Justice Department probe, rather than assigning its own investigators to work separately.

Shares of other educational services companies benefitted from ITT's favorable outcome. Career Education Corp. shares climbed $1.44, or 4 percent, to $37.78 on the Nasdaq, Strayer Education Inc. rose 98 cents to $86.57, Education Management Corp. shares were up $1.08, or 3.4 percent, to $33.03, and shares of DeVry Inc. gained 54 cents, or 2.8 percent, to $20.04 on the New York Stock Exchange.

Apollo Group Inc. grew $2.74, or 3.6 percent, to $79.95 on the Nasdaq, and Corinthian Colleges Inc. rose 6 cents to $12.96.

[HenryTo]

I still believe that the for-profit education sector is still a long-term hold - APOL should be a good buy at some point.

Apollo profit, sales top views
By Dan Burrows, MarketWatch
Last Update: 9:42 AM ET June 28, 2005

NEW YORK (MarketWatch) -- Apollo Group Inc. said Tuesday quarterly profit rose 40%, helped by higher enrollment and revenue at its main University of Phoenix business.

But shares traded lower on concern over its slowing growth rate and a cautious revenue outlook.

Apollo (APOL: news, chart, profile) , of Phoenix, Ariz., saw its stock fall $2.47, or 3.1%, to $77.76 soon after the opening bell.

For the fiscal third quarter, the for-profit education company recorded net income of $141.8 million, or 77 cents a share, up from $101.1 million, or 56 cents, in the year-earlier period.

Total revenue for the three months ended May 31 advanced 25% to $619 million from $497 million in last year's third quarter. The company's flagship University of Phoenix business contributed 89% of $576.6 million in net tuition revenue, Apollo said.

Analysts surveyed by Thomson First Call were looking for earnings, on average, of 74 cents a share on total revenue of $626 million.

Total enrollment for the company's degree programs stood at 296,000 students as of May 31, up 23% from a year ago.

For the fourth quarter, Apollo targeted earnings at 67 cents a share -- in line with analysts' estimate -- but was cautious on revenue, projecting it at $605 million to $620 million, shy of analysts' view for $622 million.

Full-year earnings are projected at $2.48 a share, ahead of analysts' outlook for $2.45 a share.

Harris Nesbitt analyst Jeffrey Silber called the results "a mixed bag," telling clients investors may trade on cooling revenue and enrollment gains.

"While the [earnings per share] headline was positive, we believe investors may focus on [year-over-year] revenue and enrollment growth of 25.% and 24%, respectively," said Silber in a note to clients. "While both are solid, in our view, they represent the slowest [year-over-year] growth rates in over four years."